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Enbridge Vs. Bank of Nova Scotia: Which Stock Is a Better TFSA Buy?

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Are you an investor using your Tax-Free Savings Account (TFSA) to buy stocks? I have two stocks that could offer you good upside potential after the recent sell-off. Let’s find out about these stocks.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) stock has lost 18% of its value so far this year, underperforming the benchmark S&P/TSX Composite Index.

But that weakness, in my view, is a buying opportunity for TFSA investors who want to earn a higher dividend yield from a dependable energy utility. 

The company operates across North America, fueling the economy and fulfilling consumers’ energy needs. Enbridge moves nearly two-thirds of Canada’s crude oil exports to the U.S., transports about 20% of the natural gas consumed in the U.S., and operates North America’s third-largest natural gas utility by consumer count

Enbridge is largely insulated from swings in commodity prices, as it sets prices for transporting oil and gas in long-term contracts. The latest recovery in oil prices shows that the worst is over for oil producers. That means their share prices should improve as economies reopen. 

Another reason to buy a dividend stock like Enbridge is that when interest rates fall, these stocks become more attractive. Enbridge, which currently yields about 7.7% a year, is offering quite an attractive risk/reward equation. Its current return is among the best you can earn from other Canadian utilities. Enbridge pays a $0.81-a-share quarterly dividend. 

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Bank of Nova Scotia

Being in the lending business, banks’ fates are closely tied with the direction of the economy. That’s the reason their stock prices are depressed; some borrowers find it hard to pay back their loans. 

Despite this unfriendly economic environment for banks, I believe the right time to take a position in them is when their share prices are low.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), trading at $57.23 and with an annual dividend yield of 6.36%, is one such stock to buy for your TFSA.

The third-largest lender is exposed to emerging markets and could see a few quarters of weakness. Its quarterly earnings plunged 41% after the lender set aside a record amount for loan losses in May, hurt by the coronavirus pandemic.

Chief Executive Officer Brian Porter has told analysts that he expects economic declines in the bank’s core markets for the balance of the year. The lender will return to growth in 2021 on a “gradual abatement of the pandemic” and reopening of economies, he says.

Over the long run, BNS has proven to be a good stock to buy with its growing payouts. The lender has returned cash to investors every year since 1832, while it has hiked its payouts in 43 of the last 45 years. Scotiabank pays a $0.90-per-share quarterly dividend.

Bottom line

I like both Enbridge and BNS for TFSA investors. I believe both stocks will emerge from the current phase of weakness, offering investors good upside potential.

Speaking of TFSA stocks, here are our best picks for this month.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar owns Enbridge shares. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA.

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